Co-op bondholders warn bank risks being nationalised

A group of disgruntled holders of bonds in the Co-op Bank have warned the City
regulator that plans to all but wipe their investments out could lead to the
troubled institution being nationalised.

In most cases Pibs have proved highly rewarding holdings, but the banking crisis has caused some Pibs to suffer - Co-op bondholders are the latest and arguably worst-hit.Photo: BEN STANSALL/AFP/GettyImages

In a sternly worded open letter to Andrew Bailey, head of the Prudential Regulatory Authority, a representative of 1,300 bondholders accused the watchdog of taking “punitive and disproportionate” actions toward the bank.

The PRA is requiring the Co-op Bank, part of the Co-operative Group, to fill a £1.5bn capital black-hole through a number of measures.

Central to these is a ‘bail-in’ of approximately 15,000 junior bondholders which will see their investments all but wiped out, with coupons - or interest payments - cancelled.

The rescue plan requires the support of around 80pc of the holders of its £1.3bn of junior debt or the lender could end up being nationalised.

Mark Taber, who has set up an action group to represent the 1,300 bondholders who have contacted him with their concerns, is urging Mr Bailey to review the £1.5bn capital requirement and the timetable that it has “imposed” on the bank and the subsequent capital plan.

He also wants the PRA, which is part of the Bank of England, to publish the basis on which the shortfall was determined.

Mr Taber, who ran a similar action group for Bristol and West junior bondholders affected by the Bank of Ireland’s problems, said the PRA’s actions have caused an “unavoidable standoff” which could result in “unnecessary nationalisation” of the bank.

His final plea is for the PRA to be open about what commitments it has received from the Co-op Group in terms of future support, asking for an “ironclad guarantee” that the proceeds from the sale of its two insurance businesses will be injected into the bank.

As well as sending the letter to Mr Bailey, he has sent copies to the Chancellor, George Osborne; Andrew Tyrie, chairman of the House of Commons Treasury Select Committee; and to Mark Carney, the new Governor of the Bank of England.

A Co-op spokesman said: “This solution draws on the support of the bank’s key stakeholders, the Co-operative Group and investors in the bank’s subordinated capital securities, allowing both to make a joint contribution to support the bank at this crucial time.

“It is an equitable solution, arrived at after considering all alternatives, and will prevent the more severe adverse consequences for holders of the subordinated capital securities.”